MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS: BELOW AND ELSEWHERE IN THIS ANNUAL REPORT INCLUDES "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND IS
SUBJECT TO THE SAFE HARBOR CREATED BY THAT SECTION. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD LOOKING
STATEMENTS INCLUDE CHANGES IN GENERAL ECONOMIC CONDITIONS, INDUSTRY TRENDS,
CUSTOMER REQUIREMENTS, CUSTOMER CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENTS BY
COMPETITORS.
PREFACE
- -------
In 1997 Radiant Technology Corporation celebrated both its 25th
anniversary and its most profitable year. A profit of $.32 per share represents
a return on shareholders equity, from the beginning of the year, of 37%.
Revenue increased 6% and backlog at year-end was 27% greater than the
prior year's end.
The Company is positioning itself for growth over the next several
years. RTC moved into newer facilities during the year, enhancing production,
customer service and staff growth capabilities. Management continues to remain
optimistic in obtaining continued growth in revenue and profits.
SALES
- -----
During the fiscal years ended September 30, 1997, 1996, and 1995, the
Company's revenues were derived from sales of the following products:
Gross Sales
- -----------
(in thousands) 1997 1996 1995
---- ---- ----
$ % $ % $ %
-------------------------------------------
Conveyorized Infrared
Ovens and Furnaces 3,797 86 3,574 86 3,382 84
Field Service & Parts 615 14 598 14 641 16
Total 4,412 100 4,172 100 4,023 100
The Company is engaged in the marketing, design, manufacture and
service of highly precision thermal processing systems that are primarily used
by manufacturers of electronic componentry. The Company's conveyorized (belt)
ovens and furnaces are in demand, worldwide, to meet ever-changing process
requirements in the semiconductor packaging, flat panel display, hybrid thick
film firing, multichip module, photovoltaic (solar cell) and printed circuit
board assembly industries. New and inventive uses of the product line for other
applications continue to be discovered.
The nature and high intensity of the infrared heat produced in the
Company's furnaces permits a high rate of heat absorption by the electronic
parts processed through them, making them more adaptable to the exacting
tolerances and high-speed heating requirements of certain industrial users.
Operating costs are significantly lower than for conventional ovens and
furnaces. Since these ovens and furnaces can be brought up to operating
temperatures in a shorter time span, operate at a faster conveyor belt speed,
require less floor space and use less electric energy.
To obtain financial growth and stability the Company concentrates on
managing the following key elements of its business:
Technological Leadership: The Company is constantly in contact with its
customers soliciting their input for both continued product improvement and new
product development. The Company encourages customers anticipating new thermal
processing requirements to contact it regarding their new challenges.
1
Customer Diversity: Customers from different facets of the electronics industry
are sought and maintained. As demand for the various manufacturing elements in
the electronics high technology industry shifts, RTC works to position itself to
be ready to be immediately responsive to changing market emphasis.
Service: The Company concentrates on providing timely, high quality,
responsiveness to its customer base. Most service concerns are handled by Phone,
FAX or E-mail immediately. Customer Service Engineers, when needed, are
dispatched within the day. Internationally, the Company retains Sales/Service
representatives, factory trained, to provide the same level of dedication to
placing the concerns and needs of the customer first.
MARKETS AND PRODUCTS:
The Company's near infrared processing systems are principally in
demand for the following applications:
SemiConductor Packaging: In recent years, flip chip packaging technology has
gained widespread acceptance. RTC provides products for key process steps in
this packaging technology. The first process, called wafer bumping, involves a
reflow solder process to form the solder balls on all of the input/output (I/O)
pads on the wafer. Because of the extremely small geometries involved, this
process is best accomplished in a hydrogen atmosphere. RTC offers the S-series
high temperature furnace for this application which, when equipped with the
hydrogen safety package, provides the high temperature (350(Degree)C) reflow
process in a 100% hydrogen atmosphere. The second process, called "chip joining"
is a reflow solder process for attaching the flip chip die to the semiconductor
package or alternatively to a printed circuit assembly (direct chip attach). RTC
offers both a near infrared or forced convection oven for the chip joining or
direct chip attach processes. RTC's D-series ovens are suitable for low
temperature curing applications such as required for the "under-fill" epoxy
dispensed under the die in a flip chip package or curing epoxy glob tops for
chip on board requirements.
For more traditional chip packaging technologies, RTC offers an AG-series
furnace designed specifically for the silver-glass die attach process.
Silver-glass die attach is an adhesive curing step prior to the wire bonding of
the die to the package. A critical thermal profile is required to achieve the
proper mechanical and thermal properties of the silver-glass material. Other
packaging thermal processes such as final lid sealing (metal or glass) and lead
frame embed or pin brazing are easily accomplished in RTC's S- or AG-series
furnaces.
Photovoltaics: For well over a decade, RTC has been the major supplier of
sintering furnaces used by photocell manufacturers for firing metallized inks to
form the front-side contacts and the back-side fields on the individual solar
cells. The product ideally suited for sintering of the metallized inks is our
C-series furnace. In recent years, existing RTC customers have been
experimenting with using a modified version of our S-series furnace for
phosphorus diffusion which is the first thermal process in the manufacture of
solar cells. This process had previously been accomplished in batch mode in a
tube furnace. An extremely precise thermal process is required for phosphorus
diffusion because this step ultimately determines the cell's efficiency in
generating power when exposed to sunlight.
Flat Panel Display: While the flat panel display market has been around for
several years primarily in Japan, it is a relatively new market for US equipment
manufacturers. RTC has developed in close cooperation with a flat panel
manufacturer, one of the first US built system for processing large glass
panels. The RTC furnace can handle glass panels up to 58 inches wide. In
addition to the challenges of achieving uniform heating over the entire panel,
there were unique mechanical challenges for handling the large glass panels
while loading and unloading the furnace.
Printed Circuit Board: RTC offers both infrared and forced convection heating
technology for printed circuit board assembly. These low temperature ovens are
used for mass reflow soldering of surface mount components to a printed circuit
assembly after the solder paste has been screened onto the assembly and the
various components have been placed into proper position.
Hybrid Thick Film: Hybrid thick film technology involves the firing of various
types of inks screen printed on ceramic substrates to form conductors, and
resistors. The thick film materials commonly referred to as inks consist of
mixtures of metal, glass and/or ceramic powders dispersed in organic vehicles or
solutions of polymers in solvents. Precise thermal profiles are required to
achieve the desired resistor value, or electrical properties of the conductors.
RTC offers the TF-series furnace for firing thick film inks in air, and the
TFA-series for firing thick film materials in a controlled, inert atmosphere
having a low oxygen content.
2
Multichip Modules: Multichip module technology is an emerging packaging
technology. All RTC products can be used in some combination to manufacture a
multichip module (or package). A unique requirement exists in the manufacture of
a MCM-D structure which is a thin film laminate structure whose inter-layer
adhesion is critically dependant on multiple pass curing steps. RTC has
developed an intelligent curing oven for just this purpose where integrated
sensors, through feed back mechanisms, control the curing process in real-time.
All systems use P. C.'s to provide appropriate man/machine interface with
embedded microprocessors achieving precise control of thermal operations. Such.
functions as power, temperature, belt speed, process gas measurement, profiling,
maintenance requirements, data logging, local and remote communications,
diagnostics and operation, and computer integrated manufacturing with SECS/GEM
interface are available.
MARKETING, SALES AND CUSTOMERS
The Company sells its products throughout the world, primarily to
organizations engaged in the manufacture of electronic components and
assemblies. RTC maintains direct sales offices in the United States.
Internationally the Company is represented through independent sales/service
organizations.
Customers evaluate furnace vendors on their technological leadership
resulting in high process yield of material produced. This primary benefit
combined with high up time, low meantime between failure, MTBF, quick reliable
service and spare parts response time combine to produce low cost of equipment
ownership.
Operating Data
- --------------
(in thousands) Year Ended September 30
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net Sales $4,412 $4,173 $4,023 $2,219 $3,916
Income (loss) from
Continuing Operations 592 222 (85) (656) 101
Total Assets 4,102 2,524 1,775 1,413 2,041
Long-term debt 0 0 0 0 0
Per Share Information
Income(loss) from
Continuing Operations .32 .18 (.44) (3.47) .53
Cash Dividends 0 0 0 0 0
The Company does not experience a seasonal demand for its product.
Rather the demand for product, is dependent on the demand for new manufacturing
equipment.
HISTORY AND PROFITS
Radiant Technology Corporation was incorporated in the State of
California in 1972.
Net sales of $4,412,000 increased $239,425 or 6% for the fiscal year
ended September 30, 1997. Net sales of $4,173,000 fiscal 1996 increased $149,372
or 4% from the fiscal 1995 level of $4,023,000.
Fiscal 1997 was the most profitable in the history of the Company.
Income before benefit of taxes was $433,812, with the after tax benefit it
amounted to $591,812 or $.32 per share. This represents a Return on Equity, from
the beginning of the year, of 37%. It compares most favorably with prior 2 years
earnings, especially when the adjustment for extraordinary item is eliminated as
depicted in the statements of income.
Cost of Sales was up slightly due primarily to the introduction of a
new furnace line and discounts incurred in conjunction with a large order.
Selling and G & A costs were kept at moderate levels despite gains in sales and
backlog during the reporting fiscal year.
Interest was booked as income, rather than expense, for the first time
in many years. Borrowing is reserved only for short-term requirements.
3
Research and Development costs were maintained at the same relevant
rate as prior years. These costs are essential to the Company's long term
future. A future that can move very quickly in the high technology field.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, cash increased by $446,476. The Company anticipates that
it has sufficient cash to fund planned sales growth in 1998 without any long
term borrowing. There may be occasional periods when short- term borrowing will
be accommodated, although little of this type of activity is foreseen.
Furthermore, the Company anticipates having sufficient cash to purchase planned
capital equipment requirements.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTER
- -------------------------------------------------------------------------
The Company's common stock, symbol RTNC, is quoted by the National
Quotation Bureau, Inc. ("NQBI") on the "Pink Sheets". The table below sets forth
the representative high and low bid prices for the common stock during each
calendar period indicated. The Quotations represent interdealer prices without
adjustments for retail mark-ups, mark-downs or commissions and consequently do
not necessarily reflect actual transactions.
Holders of shares of Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors of the Company
out of funds legally available therefore and, upon the liquidation, dissolution
or winding up of the Company are entitled to share ratably in all net assets
available for distribution to such share holders. The Company has never paid any
dividends. It is anticipated that all earnings, if any, will be retained for
development of working capital to grow the business of the Company and there is
no present intention to declare dividends in the foreseeable future.
Shareholders of Record: As of September 30, 1997, the number of
recorded holders of the Company's Common Stock was 421.
Stock Price
- -----------
HIGH LOW
----------------------
1997
1st Quarter................. $ .50 $ .125
2nd Quarter................. .25 .125
3rd Quarter................. .25 .125
4th Quarter................. .25 .125
1996
1st Quarter............... * *
2nd Quarter................. * *
3rd Quarter................. .625 .188
4th Quarter................. 1.50 .313
* No trading in this quarter due to trading suspension relative
to the reverse stock split processing as outlined in the reorganization plan.
4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Radiant Technology Corporation
We have audited the accompanying balance sheets of Radiant Technology
Corporation as of September 30, 1997 and 1996, and the related statements of
income, stockholders' equity (deficit) and cash flows for each of the years in
the three year period ended September 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Radiant Technology Corporation
as of September 30, 1997 and 1996 and the results of its income and its cash
flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
December 2, 1997
16
RADIANT TECHNOLOGY CORPORATION
Balance Sheets
September 30,
------------------------------------
1997 1996
--------------- ---------------
ASSETS
Current assets:
Cash and equivalents $ 1,817,316 $ 610,128
Accounts receivable 756,505 759,123
Inventories 714,458 640,846
Deferred taxes 170,000 -
--------------- ---------------
Total current assets 3,458,279 2,010,097
Property and equipment 573,504 444,445
Other 70,222 69,830
--------------- ---------------
$ 4,102,005 $ 2,524,372
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,000,000 $ -
Accounts payable 168,598 174,760
Accrued expenses 384,722 314,638
Customer deposits 368,384 446,485
--------------- ---------------
Total current liabilities 1,921,704 935,883
--------------- ---------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock - -
Capital stock 1,143,008 1,143,008
Retained earnings 1,037,293 445,481
--------------- ---------------
Total stockholders' equity 2,180,301 1,588,489
--------------- ---------------
$ 4,102,005 $ 2,524,372
=============== ===============
The accompanying notes are an integral part of these financial statements.
17
RADIANT TECHNOLOGY CORPORATION
Statements of Income
Year Ended September 30,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Net sales $ 4,412,024 $ 4,172,575 $ 4,023,203
Cost of Sales 2,859,096 2,545,246 2,548,852
-------------- -------------- --------------
Gross profit 1,552,928 1,627,329 1,474,351
-------------- -------------- --------------
Operating expenses:
Selling, general and administrative 906,379 1,089,438 885,257
Research and development 254,561 264,954 239,569
-------------- -------------- --------------
Total operating expenses 1,160,940 1,354,392 1,124,826
-------------- -------------- --------------
Income from operations 391,988 272,937 349,525
Interest income (expense) 41,824 (10,020) (37,231)
-------------- -------------- --------------
Income before reorganization expenses, provision
for income taxes and extraordinary item 433,812 262,917 312,294
-------------- -------------- --------------
Reorganization expenses:
Provision for bankruptcy claims - - 373,130
Professional fees - 40,327 87,395
-------------- -------------- --------------
- 40,327 460,525
-------------- -------------- --------------
Income (loss) before provision for income taxes
and extraordinary item 433,812 222,590 (148,231)
Provision (benefit) for income taxes (158,000) 800 (63,400)
-------------- -------------- --------------
Income (loss) before extraordinary item 591,812 221,790 (84,831)
Extraordinary item:
Gain on extinguishment of debt (net of taxes
of $64,200 in 1995) - 223,691 632,849
-------------- -------------- --------------
Net income $ 591,812 $ 445,481 $ 548,018
============== ============== ==============
Income (loss) per share:
Before extraordinary item $ 0.32 $ 0.18 $ (0.44)
Extraordinary item - 0.19 3.32
-------------- -------------- --------------
Net income $ 0.32 $ 0.37 $ 2.88
============== ============== ==============
Weighted average number of
common shares outstanding 1,867,638 1,209,405 190,409
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
18
RADIANT TECHNOLOGY CORPORATION
Statements of Stockholders' Equity (Deficit)
Years Ended September 30, 1997, 1996 and 1995
(Accumulated
Deficit) Stockholders'
Capital Stock Retained Equity
--------------------------
Shares Amount Earnings (Deficit)
------------ ------------- --------------- ---------------
Balance, September 30, 1994 190,409 $ 2,981,195 $ (3,032,342) $ (51,147)
Net loss - - 548,018 548,018
------------ ------------- --------------- ---------------
Balance, September 30, 1995 190,409 2,981,195 (2,484,324) 496,871
Issuance of shares -
Bankruptcy reorganization
McNamee loan 380,818 175,051 - 175,051
Operation Phoenix loan 571,227 229,172 - 229,172
Creditors and original shareholders 380,818 3,900 - 3,900
Employees 380,818 13,709 - 13,709
Other 90,750 36,300 - 36,300
Repurchase of shares (127,202) (38,989) - (38,989)
Application of fresh start accounting - (2,257,330) 2,484,324 226,994
Net income - - 445,481 445,481
------------ ------------- --------------- ---------------
Balance, September 30, 1996 1,867,638 1,143,008 445,481 1,588,489
Net income - - 591,812 591,812
------------ ------------- --------------- ---------------
Balance, September 30, 1997 1,867,638 $ 1,143,008 $ 1,037,293 $ 2,180,301
============ ============= =============== ===============
The accompanying notes are an integral part of these financial statements.
19
RADIANT TECHNOLOGY CORPORATION
Statements of Cash Flows
Year Ended September 30,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Cash flows from operating activities:
Net income $ 591,812 $ 445,481 $ 548,018
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on forgiveness of debt - (223,691) (632,849)
Issuance of stock for compensation - 13,709 -
Bad debt expense 17,800 55,000 23,500
Depreciation and amortization 118,924 100,236 131,422
Inventory obsolescence 15,000 53,000 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (15,182) (201,539) (296,271)
Inventory (88,612) (111,749) (84,897)
Deferred taxes (170,000) - -
Prepaid and other assets (9,087) 9,398 22,825
Increase (decrease) in:
Accounts payable (6,162) 128,126 -
Accrued expenses 70,084 (28,223) -
Customer deposits (78,101) 235,400 -
-------------- -------------- --------------
Net cash provided (used) by operating
activities before reorganization items 446,476 475,148 (288,252)
-------------- -------------- --------------
Changes in reorganization items:
Increase (decrease) in liabilities:
Not subject to compromise - - 446,985
Subject to compromise - (45,809) -
-------------- -------------- --------------
Net change in reorganization items - (45,809) 446,985
-------------- -------------- --------------
Net cash provided (used) by
operating activities 446,476 429,339 158,733
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (239,288) (160,158) (48,183)
-------------- -------------- --------------
The accompanying notes are an integral part of these financial statements.
(continued)
20
RADIANT TECHNOLOGY CORPORATION
Statements of Cash Flows (continued)
Year Ended September 30,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
Cash flows from financing activities:
Repurchase of common stock $ - $ (38,989) $ -
Borrowing on line of credit 1,000,000 - -
-------------- -------------- --------------
Net cash provided (used) by
financing activities 1,000,000 (38,989) -
-------------- -------------- --------------
Net increase in cash 1,207,188 230,192 110,550
Cash and cash equivalents, beginning of year 610,128 379,936 269,386
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 1,817,316 $ 610,128 $ 379,936
============== ============== ==============
Supplemental disclosures of cash flow information and non-cash investing and financing activities:
1997 1996 1995
-------------- -------------- --------------
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ 800 $ 800 $ 13,369
In 1996, as part of the bankruptcy plan, debt and accrued interest of $406,223
and payables of $3,900 were retired through the issuance of common stock.
In 1996, the Company issued common shares with a value of $36,309 to purchase
accounts receivable originally seized by Bank of America during the bankruptcy
proceedings.
Upon emergence from bankruptcy the Company applied fresh-start accounting,
resulting in an increase in fixed assets and patents, the elimination of
accumulated deficit and a reduction in the capital stock as follows:
Fixed assets $ 176,994
Patents 50,000
Capital stock 2,257,330
Retained Earnings (2,484,324)
-------------
$ -
=============
The accompanying notes are an integral part of these financial statements.
21
RADIANT TECHNOLOGY CORPORATION
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
Nature of Operations
--------------------
Radiant Technology Corporation (the "Company") is engaged in the
manufacturing and marketing of infrared conveyorized ovens and furnaces
used by the microcircuit manufacturing industry.
All of the Company's operations are located in California. Sales to
entities located outside the United States are as follows:
1997 1996 1995
-------------- -------------- --------------
Pacific Rim countries $ 616,860 $ 538,100 $ 1,037,400
European countries 819,631 311,600 207,100
NAFTA countries 52,500 215,900 328,200
-------------- -------------- --------------
$ 1,488,991 $ 1,065,600 $ 1,572,700
============== ============== ==============
Revenue recognition
-------------------
The Company recognizes revenue from product sales upon shipment.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
Accounts receivable and sales returns
-------------------------------------
The allowance for doubtful accounts and sales returns includes management's
estimate of the amount expected to be lost on specific accounts and for
losses on other as yet unidentified accounts included in accounts
receivable. In estimating the allowance component for unidentified losses
and returns, management relies on historical experience. The amounts the
Company will ultimately realize could differ materially in the near term
from the amounts assumed in arriving at the allowance for doubtful accounts
and sales returns in the accompanying financial statements.
Inventories
-----------
Inventories include material, direct labor and manufacturing overhead and
are reported at the lower of cost (determined on the first-in-first-out
method) or market. Allowances for slow moving and obsolete inventory are
based on management's estimate of the amount considered obsolete based on
specific review of inventory items. In estimating the allowance, management
relies on its knowledge of the industry as well as its current inventory
levels.
22
RADIANT TECHNOLOGY CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
Equipment
---------
Equipment is stated at cost, less accumulated depreciation. Depreciation is
calculated using the straight-line method over the estimated useful lives
of the related assets or over the lesser of the term of the lease or the
estimated useful life for leasehold improvements.
Maintenance and repairs are expensed as incurred while renewals and
betterments are capitalized. Upon the sale or retirement of equipment, the
accounts are relieved of the cost and the related accumulated depreciation
and amortization, and any resulting gain or loss is included in operations.
Software development costs
--------------------------
The Company capitalizes internal software development costs in accordance
with Statement of Financial Accounting Standards No. 86. The capitalization
of these costs begins when a product's technological feasibility has been
established and ends when the product is available for general release to
customers. The Company uses the working model approach to establish
technological feasibility. Amortization is computed on an individual
product group on the straight-line method over the estimated economic life
of the product. Currently, the Company is using an estimated economic life
of three years for all capitalized software costs. Amortization expense was
$45,363, $52,794 and $105,591 for 1997, 1996 and 1995, respectively.
Customer deposits
-----------------
The Company often requires a deposit from customers before commencing work
on a furnace. It is the Company's policy to record the deposit as a
receivable with a corresponding deferred liability at the time the sales
order is written. When the deposit is received, the receivable is relieved.
Income taxes
------------
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
23
RADIANT TECHNOLOGY CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
Earnings per common share
-------------------------
Earnings per common share is computed by dividing reported earnings by the
weighted average number of common shares outstanding during the respective
periods. Common stock equivalents were excluded from the computations of
earnings per share because the effect of including such equivalents in the
computation would have been anti-dilutive.
Fair value of financial instruments
-----------------------------------
The fair value of financial instruments, consisting principally of notes
payable is based on interest rates available to the Company and comparison
to quoted prices. The fair value of these financial instruments
approximates carrying value.
Stock based compensation
------------------------
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion 25
("APB 25"). APB 25 requires compensation costs for stock based compensation
plans to be recognized based on the difference, if any, between the fair
market value of the stock on the date of the grant and the option exercise
price. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 established a fair value-based method
of accounting for compensation costs related to stock options and other
forms of stock-based compensation plans. However, SFAS 123 allows an entity
to continue to measure compensation costs using the principles of APB 25 if
certain pro forma disclosures are made. SFAS 123 is effective for fiscal
years beginning after December 15, 1995. The Company adopted the provisions
of pro forma disclosure requirements of SFAS 123 in fiscal 1997. Options
granted to non-employees are recognized at their estimated fair value at
the date of grant.
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Reclassifications
-----------------
Certain items in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
24
RADIANT TECHNOLOGY CORPORATION
2. BANKRUPTCY PROCEEDINGS
- ---------------------------
On November 12, 1993 the Company filed petition for relief under Chapter 11
of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the
Central District of California. The Bankruptcy Court confirmed the Plan of
Reorganization on August 3, 1995 and the bankruptcy was dismissed on
February 20, 1996. The plan called for the following:
* Existing outstanding common shares at the time of bankruptcy were diluted
30:1. Upon this reverse stock split, the shareholders in this class were
given the option to redeem all their new shares for $.20 per share.
Shareholders left with five or fewer shares after the reverse split were
subject to automatic repurchase.
* Unsecured general creditors with claims in excess of $300 were given the
option to either a) convert to equity by accepting a pro-rata portion of
380,818 shares of common stock or b) accept cash equivalent to 15
percent of their allowed claims. If option a) was selected, the pro-rata
share was determined by claims allowed, not by the number of creditors
selecting this option. Any of the 380,818 shares not distributed because
the creditors elected option b) were distributed to existing
shareholders who did not elect to receive cash for their shares. As a
result 370,647 shares were distributed to existing shareholders.
* Unsecured general creditors with claims of $300 or less were paid in
full.
* Lawrence McNamee received 380,818 shares of common stock as payment for
his post-petition loan and related accrued interest totaling $177,051.
* Operation Phoenix, a general partnership consisting of Company employees,
received 571,227 shares of common stock as payment for a post-petition
loan and related accrued interest totaling $229,172.
* Employees who agreed to take no wages during the shutdown period and
agreed to reduce wages for a period of two years were awarded 380,818
shares of common stock.
Total debt forgiven was $920,740. The Company accounted for the
reorganization using fresh-start reporting. Accordingly all assets and
liabilities were restated at the date of dismissal to reflect their
reorganization value, which approximates fair value at the date of
reorganization. Independent appraisers were used to determine the fair
value of assets. The book value of fixed assets were increased by $177,000
and patents by $50,000. Accumulated deficit of $2,484,324 was eliminated
with a corresponding net reduction in capital stock.
While the 1995 financial statement information is presented to satisfy
regulatory requirements, this presentation should not be viewed as a
continuum because the 1996 and 1997 financial statements are those of a
different reporting entity prepared using a different basis of accounting,
and therefore, are not comparable to those of prior periods.
25
RADIANT TECHNOLOGY CORPORATION
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
- -----------------------------------------------------------
The Company, from time to time, has cash deposits at financial institutions
in amounts in excess of federally-insured limits. The Company believes that
credit risk related to its cash deposits is limited due to the quality of
the financial institutions.
The Company's customers are located in several geographic markets,
primarily in the United States, Europe and Pacific Rim countries and are
concentrated within three industries. To minimize the risk of loss, the
Company routinely assesses the financial strength of its customers, and may
require a substantial downpayment prior to commencing machine production.
Net accounts receivable by geographic markets are as follows:
1997 1996
--------------- ---------------
United States 94% 99%
European countries 5% 1%
Pacific Rim countries 1% -
NAFTA countries - -
--------------- ---------------
100% 100%
=============== ===============
During 1997, 1996 and 1995, the five largest customers represented 63, 38
and 34 percent of revenues. At September 30, 1997 and 1996 the five largest
account receivable balances represented 74 and 95 percent, respectively, of
total accounts receivable.
4. ACCOUNTS RECEIVABLE
- -------------------------
1997 1996
--------------- ----------------
Trade receivables $ 794,005 $ 845,123
Less: allowance for doubtful accounts (37,500) (86,000)
--------------- ----------------
$ 756,505 $ 759,123
=============== ================
26
RADIANT TECHNOLOGY CORPORATION
4. ACCOUNTS RECEIVABLE (CONTINUED)
- ------------------------------------
Activity relating to the allowance for doubtful accounts and sales returns
is as follows:
1997 1996 1995
---------- ----------- ----------
Balance at beginning of year $ 86,000 $ 31,000 $ 7,500
Provision 17,800 71,300 45,000
Write offs (66,300) (16,300) (21,500)
----------- ----------- -----------
Balance at end of year $ 37,500 $ 86,000 $ 31,000
=========== =========== ============
5. INVENTORIES
1997 1996
--------------- ---------------
Raw materials $ 455,848 $ 394,176
Work in process 358,610 425,670
--------------- ---------------
814,458 819,846
Allowance for obsolete inventories (100,000) (179,000)
--------------- ---------------
$ 714,458 $ 640,846
=============== ===============
Activity relating to the allowance for obsolete inventories is as follows:
1997 1996 1995
--------------- --------------- ---------------
Balance at beginning of year $ 179,000 $ 126,000 $ 348,000
Provision 15,000 80,000 24,000
Write offs (94,000) (27,000) (246,000)
--------------- --------------- ---------------
Balance at end of year $ 100,000 $ 179,000 $ 126,000
=============== =============== ===============
27
RADIANT TECHNOLOGY CORPORATION
6. EQUIPMENT
Life in years 1997 1996
--------------- ---------- ----------
Machinery and equipment 7 $ 318,649 $ 288,935
Office furniture and equipment 7 43,200 31,873
Leasehold improvements 5 60,867 125,408
Vehicles 5 15,050 15,050
Capitalized computer software 3 273,470 136,090
---------- ----------
711,236 597,356
Less: accumulated depreciation and amortization (137,732) (152,911)
---------- ----------
$ 573,504 $ 444,445
========== ==========
Leasehold improvements of $125,408, which were fully depreciated, were
removed from the Company's books upon moving to a new building in January
1997.
Depreciation and amortization for 1997 and 1996 was $110,229 and $95,878,
respectively.
7. OTHER ASSETS -
- -------------------
1997 1996
--------------- ---------------
Deposits $ 24,430 $ 18,288
Patents, net of amortization
of $13,053 and $4,358 36,947 45,642
Other 8,845 5,900
--------------- ---------------
$ 70,222 $ 69,830
=============== ===============
8. NOTES PAYABLE
- ------------------
The Company has a $1,000,000 revolving line of credit, bearing interest at
the LIBOR rate plus 2 percent. The line expires in September 1998, but may
be renewed at the option of the Company.
28
RADIANT TECHNOLOGY CORPORATION
9. ACCRUED EXPENSES
- ---------------------
1997 1996
--------------- ---------------
Payroll and related items $ 143,388 $ 77,364
Commissions 52,792 64,973
Warranties 120,000 40,000
Moving expenses - 90,000
Other 68,542 42,301
--------------- ---------------
$ 384,722 $ 314,638
=============== ===============
10. COMMITMENTS AND CONTINGENCIES
- ----------------------------------
Operating leases
----------------
In November 1996 the Company signed a five year lease on a building in
Fullerton, California. Base monthly rent is $10,600 plus common area
charges of approximately $2,300 per month. Minimum future lease payments
under non-cancellable operating leases for each of the next five years and
in the aggregate are:
Year ending September 30,
1998 $ 154,800
1999 155,595
2000 164,340
2001 164,340
2002 51,600
Thereafter -
----------------
$ 690,675
================
Rent expense for 1997, 1996 and 1995 was $147,200, $121,000 and $96,942,
respectively.
Environmental matters
---------------------
The Company, like others in similar businesses, is subject to federal,
state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the Company to make unforeseen environmental
expenditures.
29
RADIANT TECHNOLOGY CORPORATION
11. STOCKHOLDERS' EQUITY
- -------------------------
Preferred stock
---------------
At September 30, 1997 and 1996 there were 5,000,000 authorized shares of
preferred stock, of which no shares were issued and outstanding.
Common stock
------------
The Company has authorized 24,000,000 shares of no par value common stock.
At September 30, 1997 and 1996, 1,867,638 shares were issued and
outstanding.
Warrants
--------
As a result of a successful private placement, an investment banking firm
was issued stock warrants to purchase up to 8,000 shares of the Company's
common stock at $12.00 per share The warrants became exercisable on June
30, 1992 and expired in August 1997 without being exercised.
EMPLOYEE STOCK OPTIONS
----------------------
Incentive and non-statutory option plan
---------------------------------------
The Company adopted an incentive and non-statutory stock option plan which
provides for granting options to key employees and officers. Under the
plan, options up to 1,000,000 shares may be granted at a price not less
than the fair market value of such shares on the date of the grant, and the
maximum term of each option may not exceed ten years. With respect to any
participant who owns stock possessing more than 10% of the voting rights of
the Company's outstanding capital stock, the exercise price of any stock
option must not be less than 110% of the fair market value on the date of
the grant and the maximum term may not exceed five years.
Non-statutory director options
------------------------------
On September 30, 1996, the Company granted 20,000 non-statutory options to
each of three outside board members. The options vest 50% at September 30,
1996 with the balance vesting at the end of year one, and the options
expire three years after vesting. The option price is $.48 per share which
was equal to the market price at the date of the grant.
30
RADIANT TECHNOLOGY CORPORATION
11. STOCKHOLDERS' EQUITY (CONTINUED)
- -------------------------------------
Lawrence McNamee
----------------
On January 1, 1991, the Company and its chairman, Lawrence McNamee,
executed a one year employment agreement wherein Mr. McNamee was granted
six blocks of options totaling 275,350 options which amounted to 10% of the
outstanding shares. The option price varied according to the date of the
grant. The employment agreement provided that in the event the Company
issued any additional (or repurchased existing) shares of common stock
(excluding shares issued or issuable pursuant to Mr. McNamee's employment
agreement), the number of options issued to Mr. McNamee should be
automatically and proportionately adjusted as to preserve the ratio of ten
percent of the outstanding common stock. Under certain conditions, Mr.
McNamee may be issued additional options in the amount equal to five
percent of the outstanding options and warrants excluding those belonging
to Mr. McNamee. The exercise price of any additional options issued would
be the fair market value of the stock on the date of grant. This adjustment
provision of Mr. McNamee's employment agreement is referred to as the
"Adjustment" clause. During the year ended September 30, 1996 Mr. McNamee
was granted 167,723 options under this adjustment clause, while 248,715 of
the original options expired. Option prices range from $.075 to $.375. In
fiscal 1997, all of these options expired.
Mr. McNamee also holds options to acquire 326,666 shares at $.075 per share
issued to him in lieu of salary in 1992. These options have no
expiration date.
The following table summarizes shares under option, including options both
under the Plan and outside the Plan, for the years ended September 30, 1997
and 1996:
Weighted
Number of Price Average
Shares Per Share Exercise price Exercisable
------------- ------------- -------------- --------------
October 1, 1995 765,006 $.063-.50 $0.13 765,006
==============
Granted 227,731 $0.48 $0.48
Exercised -
Canceled (308,715) $.063-.50 $0.10
------------- ------------- --------------
September 30, 1996 684,022 $.063-.50 $0.25 624,014
----------------------------- -------------- ==============
Granted 50,000 $0.48 $0.48
Exercised -
Canceled (234,356) $.075-.50 $0.44
------------- ------------- --------------
September 30, 1997 499,666 $.063-.48 $0.19 419,666
============= ============= ============== ==============
31
RADIANT TECHNOLOGY CORPORATION
11. STOCKHOLDERS' EQUITY (CONTINUED)
- -------------------------------------
Stock options (continued)
-------------------------
The following information applies to employee options outstanding at
September 30, 1997:
Outstanding
------------------------------------------------------
Weighted Average Weighted
Remaining Average
Range of Number of Contractual Exercise
exercise prices Shares Life (Years) Price
---------------- --------------- ------------------ -------------
$0.063 18,000 2 $0.06
$0.075 326,666 5 $0.08
$0.313 - .375 45,000 1 $0.33
$0.48 110,000 3 $0.48
--------------- -------------
499,666 $0.19
=============== =============
Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS 123,
the Company's net income and earnings per share would have been:
1997 1996
--------------- ---------------
Net income
As reported $ 591,812 $ 445,481
Pro forma $ 543,759 $ 406,178
Primary earnings per share
As reported $ 0.32 $ 0.37
Pro forma $ 0.29 $ 0.34
32
RADIANT TECHNOLOGY CORPORATION
11. STOCKHOLDERS' EQUITY (CONTINUED)
- -------------------------------------
Stock options (continued)
-------------------------
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1996. In addition, potential deferred tax benefits of
approximately $19,200 and $15,700 in 1997 and 1996, respectively, have not
been reflected in the pro forma amounts due to the uncertainty of realizing
any benefit. The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997 and 1996:
Expected life (years) 4
Risk-free interest rate 6.00%
Volatility 100%
Expected dividends None
The weighted fair value of options granted during the years ended September
30, 1997 and 1996 for which the exercise price approximated the market
price on the grant date was $.48.
12. INCOME TAXES
- -----------------
Income tax expense (benefit) consisted of the following:
1997 1996 1995
------------ ------------- -------------
Current tax expense $ 12,000 $ 800 $ (63,400)
Deferred tax benefit (170,000) - -
------------ ------------- -------------
$ (158,000) $ 800 $ (63,400)
============ ============= =============
33
RADIANT TECHNOLOGY CORPORATION
12. INCOME TAXES (CONTINUED)
- -----------------------------
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax income from continuing
operations in 1997, 1996 and 1995 as a result of the following:
1997 1996 1995
------------- ------------ ------------
Continuing operations:
Federal expected tax expense $ 147,000 $ 68,600 $ (50,400)
State expected tax expense 40,000 20,700 (13,000)
Inventory allowance (32,000) - -
Accounts receivable allowance (19,000) - -
Moving expense accrual (36,000) - -
Depreciation timing differences 14,000 - -
Deferred tax valuation allowance (170,000) - -
Use of NOL carryforwards - federal (88,000) (68,600) -
Use of NOL carryforwards - state (14,000) (19,900) -
------------- ------------ ------------
(158,000) 800 (63,400)
------------- ------------ ------------
Extraordinary item:
Federal - 69,000 215,200
California - 20,800 58,900
Benefit of NOL carryforward - (89,800) (274,100)
------------- ------------ ------------
Income tax expense (benefit) $ (158,000) $ 800 $ (63,400)
============= ============ ============
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at September 30, 1997 and
1996 are as follows:
1997 1996
--------------- ---------------
Net operating loss carryforwards $ 520,000 $ 687,990
Allowance for slow moving inventories 34,000 61,000
Allowance for doubtful accounts 15,000 29,000
Other (106,000) (90,000)
--------------- ---------------
Deferred tax assets 463,000 687,990
Less valuation allowance (293,000) (687,990)
--------------- ---------------
Net deferred tax asset $ 170,000 $ -
=============== ===============
34
RADIANT TECHNOLOGY CORPORATION
12. INCOME TAXES (CONTINUED)
- -----------------------------
During the year the Company reduced the valuation allowance to reflect the
deferred tax assets utilized in fiscal 1997 to reduce current income taxes
of $102,000 and to recognize a deferred tax asset of $170,000 at September
30, 1997. The recognized deferred tax asset is based upon expected
utilization of the net operating loss carryforwards and reversal of certain
temporary differences. The ultimate realization of the deferred tax asset
will require aggregate taxable income of approximately $1,523,000 in future
years.
At September 30, 1997, the Company had net operating loss carryforwards for
federal income tax purposes expiring as follows:
2005 $ 250,066
2007 651,993
2009 620,976
--------------
$ 1,523,035
==============
Federal investment credit and other general business credit carryforwards
total $35,600 and $105,500, respectively, and expire at various dates
through 2003.
13. EMPLOYEE BENEFIT PLAN
- --------------------------
The Company's 401(k) plan was re-activated during fiscal 1996. All
employees are eligible as long as they are 21 years of age and have
completed one year of employment. The plan provides for Contributions by
the Company in such amounts as management may determine. No expense was
charged to operations in 1997 or 1996.